Power Grids Are at Their Limit

• Christian Rom
  Portfolio Manager
  DNB Asset Management

Electricity consumption is rising significantly for the first time in years. We expect that all forms of energy will be necessary to meet the anticipated growth in energy demand in the coming years. Electricity demand is being driven by the reshoring of production, ongoing electrification, and the rapid expansion of AI data centers. Added to this is energy security. Renewable energy, energy efficiency, and alternatives to fossil fuels—including batteries, electric vehicles, biofuels, transformation materials, grid infrastructure, and electrical equipment—are key parts of the solution. In our view, these drivers are structural.

AI is already influencing electricity demand and investment decisions today. The time it takes to secure available power supply is one of the biggest constraints on data center expansion. That is why off-grid mobile gas engines combined with storage systems are currently among the preferred solutions. Existing nuclear power plants have already been re-contracted and upgraded, while the order books for gas turbines are full through the end of the decade.

At the same time, it is becoming apparent that the aging grid infrastructure is struggling to cope with the growing number of large grid connection requests, changing load profiles, the rising share of fluctuating renewable energy, and recurring load growth. Investment in the grids must increase significantly over the coming decade. However, this will not happen without discussions about affordability.

Electrification Infrastructure Less Dependent on Politics

Among the sectors set to benefit is, first and foremost, the infrastructure supporting electrification. The expansion, modernization, and increased flexibility of the grids require substantial investments in transmission and distribution technology, switchgear, high-voltage technology, cables, power electronics, grid software, energy storage, and demand-management solutions. Energy efficiency and the electrification of heating can also reduce energy consumption and emissions, often with attractive economic returns. These sectors can offer more predictable and less politically dependent growth than the development of renewable power generation itself.

Several companies represent different aspects of this sector: Monolithic Power and Onsemi in leading semiconductors for power conversion, Amphenol in sensors and connectors, Prysmian and Nexans in cables, and Schneider Electric in electrical equipment. In addition, there are Orsted and EDPR in power generation and CATL in battery storage.

79 percent increase in installed battery storage capacity by 2025

The bottlenecks are well known. Transformers have long lead times, while manufacturing capacity is limited. High-voltage cables and switchgear are crucial for expanding transmission grids. Power electronics are becoming increasingly important for the integration of renewable energy, storage systems, and data centers. For specialized electrical materials, copper, electrical steel, and rare-earth magnets may become scarce. Added to this are regulatory restrictions.

Storage systems are structurally important, but at the same time they are relatively sensitive to competition and price. Lower prices enable solar energy in combination with storage systems, commercial energy solutions, and new flexibility models. However, margin pressure is evident in parts of the value chain with low barriers to entry. According to Volta, installations of battery storage systems rose by 79 percent year-over-year in 2025 in terms of capacity; 40 percent of cumulative global capacity was installed in 2025 alone. This growth was driven by sharply falling costs, supportive storage policies, new markets, and improved product performance. Storage enables a higher share of renewable energy in the power system because it can mitigate the consequences of limited grid investments.

Resource efficiency and the circular economy are also gaining strategic importance. The energy transition is resource-intensive. Recycling, material recovery, and technologies that reduce the consumption of critical minerals, energy, and water are therefore likely to become more important as governments and companies seek to make their supply chains more resilient. One unit of energy saved is always cheaper than one unit of energy generated. Solutions such as heat pumps and insulation already exist, can be rolled out quickly, and have low upfront costs or short payback periods.